When it comes to any home renovations — especially with investment properties — having a budget is key to the success of the project. For many, it can be easy to overspend the budget, but a little research and planning can go a long way. These tips can help anyone stick to their renovation budget for their rental property.
Set Budgeting Goals
The first step in creating any budget is goal setting, and renovations are no exception. First, a real estate investor should understand his/her motivations for renovating. Will the renovations be an investment, with the hope to sell the property or increase the rent? These types of questions can inform the budget for the project.
Here are some common goals for renovating real estate investments:
- Increased rent
- Increased property value
- Attracting higher-spending tenants
- Reducing long-term maintenance costs
If you’re looking for higher rents, then luxury upgrades will be the right pick. If you want to reduce maintenance costs, then changes that improve energy efficiency are a better direction. Focus your goals first, then decide what kind of budget you need to accomplish a renovation.
Create a Detailed Plan
Once the overall budget has been narrowed down, all of the details should get filled in. Some research into the estimated costs for the projects can help fill in the plan. Be as specific as possible and include the costs of all the materials needed, as well as labor and installation costs. Don’t forget about added taxes, shipping or delivery charges for any parts, appliances or building materials and disposal fees for any old appliances. Also, include extras such as cabinet knobs and pulls, instead of listing just the cabinets themselves.
Also, keep in mind the type of financing for each stage of planning. Will the renovations be paid for in cash, with credit cards or using additional financing? Any loans or other financing should get arranged in advance. Consider any credit cards that offer cashback rewards as a method of payment to collect the points.
Plan Ahead for Extra Expenses
Most experts agree it’s a good idea to have a “rainy day fund” right from the beginning. Even with the most detailed budget and plan, unexpected expenses can and do arise. For example, a kitchen sink replacement could lead to the discovery of an underlying plumbing problem. These kinds of extra projects can cause serious delays and budget issues, but it’s much easier to deal with when planned for ahead of time. Many experts recommend setting aside at least 10% of a budget — and some even recommend 20% — for these types of expenses.
Shop Around for Contractors
It’s a good idea to get bids from at least three different contractors for a home remodeling project. Ask friends and family for recommendations, or check out online listings for ideas. Interview prospective contractors and provide each with a detailed plan, including the exact desired appliances or finishes.
Ask for bids from each of the contractors and compare the estimated pricing. Choose a contractor who understands every want and need, and presents an estimate that fits the budget and seems reasonable. Keep a qualified electrician and plumber’s numbers handy in case of any repair work that may come up later.
Consider Some DIY Fixes
While it’s not smart to stretch skills too far and attempt complicated plumbing and electrical work, there are many jobs a homeowner or real estate investor can do without a contractor and save some money. Painting the walls is a big money-saving renovation, as well as doing some demolition work, installing laminate flooring or improving the landscaping in the yard around the home.
Check out DIY tutorials for extra help completing some projects around the house and yard. All of these easier projects can leave lots of room in the budget for other repairs that are better left to the professionals.
Keep Renters in Mind
If the property is a rental, consider what upgrades will appeal most to renters. This will offer the best return on investment for the renovation projects. With this type of investment property, the highest-end appliances or flashiest upgrades such as pools or fireplaces, are not always needed and won’t return much on the original investment.
Focus on projects that will improve the property to attract more renters or command a higher rental rate, such as simple bathroom and kitchen upgrades. Consider especially the outdoor spaces, including landscaping, fencing, and parking areas, as well as security features such as outdoor lighting.
Setting a Rental Property Renovation Budget
With these tips in mind, it’s easy to navigate a rental property renovation without going over budget and see a return on the investment in the property. Focus on improvements that make sense to the home and that will help give a return on investment as well as appeal to future renters for the greatest success.
This article has been contributed by Holly Welles from The Estate Update.